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[Federal Register Volume 77, Number 131 (Monday, July 9, 2012)]
[Rules and Regulations]
[Pages 40250-40253]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-16699]

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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 930

[Doc. No. AMS-FV-11-0092; FV12-930-1 FR]

Tart Cherries Grown in the States of Michigan, et al.; Increasing 
the Primary Reserve Capacity and Revising Exemption Requirements

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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SUMMARY: This rule revises the primary inventory reserve capacity and 
the exemption provisions applicable to handler diversion activities 
prescribed under the marketing order for tart cherries (order). The 
order regulates the handling of tart cherries grown in the States of 
Michigan, New York, Pennsylvania, Oregon, Utah, Washington, and 
Wisconsin, and is administered locally by the Cherry Industry 
Administrative Board (Board). This action increases the volume of tart 
cherries that can be placed in the primary inventory reserve from 50 
million pounds to 100 million pounds and revises exemption provisions 
by limiting diversion credits for new market development and market 
expansion activities to one year. These changes are intended to 
facilitate sales and lessen the impact of market expansion activities 
on volume restriction calculations.

DATES: Effective Date: July 10, 2012.

FOR FURTHER INFORMATION CONTACT: Jennie M. Varela, Marketing 
Specialist, or Christian D. Nissen, Regional Director, Southeast 
Marketing Field Office, Marketing Order and Agreement Division, Fruit 
and Vegetable Program, AMS, USDA; Telephone: (863) 324-3375, Fax: (863) 
325-8793, or Email: Jennie.Varela@ams.usda.gov or 
Christian.Nissen@ams.usda.gov.
    Small businesses may request information on complying with this 
regulation by contacting Laurel May, Marketing Order and Agreement 
Division, Fruit and Vegetable Program, AMS, USDA, 1400 Independence 
Avenue SW., STOP 0237, Washington, DC 20250-0237; Telephone: (202) 720-
2491, Fax: (202) 720-8938, or Email: Laurel.May@ams.usda.gov.

SUPPLEMENTARY INFORMATION: This final rule is issued under Marketing 
Order No. 930, as amended (7 CFR part 930), regulating the handling of 
tart cherries grown in the States of Michigan, New York, Pennsylvania, 
Oregon, Utah, Washington, and Wisconsin, hereinafter referred to as the 
``order.'' The order is effective under the Agricultural Marketing 
Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter 
referred to as the ``Act.''
    The Department of Agriculture (USDA) is issuing this rule in 
conformance with Executive Order 12866.
    This final rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. This rule is not intended to have retroactive 
effect.
    The Act provides that administrative proceedings must be exhausted 
before parties may file suit in court. Under section 608c(15)(A) of the 
Act, any handler subject to an order may file with USDA a petition 
stating that the order, any provision of the order, or any obligation 
imposed in connection with the order is not in accordance with law and 
request a modification of the order or to be exempted therefrom. A 
handler is afforded the opportunity for a hearing on the petition. 
After the hearing, USDA would rule on the petition. The Act provides 
that the district court of the United States in any district in which 
the handler is an inhabitant, or has his or her principal place of 
business, has jurisdiction to review USDA's ruling on the petition, 
provided an action is filed not later than 20 days after the date of 
the entry of the ruling.
    This rule revises the primary inventory reserve capacity and the 
exemption provisions applicable to handler diversion activities 
prescribed under the order. This action increases the volume of tart 
cherries that can be placed in the primary inventory reserve from 50 
million pounds to 100 million pounds and revises exemption provisions 
by limiting diversion credits for new market development and market 
expansion activities to one year. These changes are intended to 
facilitate sales and lessen the impact of new market development and 
market expansion activities on volume restriction calculations. These 
changes were recommended by the Board at its meetings on September 15, 
2011, and November 2, 2011, respectively.
    Section 930.55 of the order provides authority for the 
establishment of a primary inventory reserve as part of the order's 
volume control provisions. Section 930.50(i) of the order establishes a 
cap of 50 million pounds on the primary inventory reserve, but provides 
authority to raise that limit if necessary, provided that any 
recommendation for change is made by the Board on or before September 
30 to become effective for the following crop year.
    Section 930.59 of the order authorizes handler diversion. When 
volume regulation is in effect, handlers may fulfill any restricted 
percentage requirement in full or in part by acquiring diversion 
certificates or by voluntarily diverting cherries or cherry products in 
a program approved by the Board, rather than placing cherries in an 
inventory reserve. These eligible diversion activities include, in 
part, use for new market development and market expansion activities.
    Section 930.159 of the order's administrative rules specifies 
methods of handler diversion, including using cherries or cherry 
products for exempt purposes prescribed under Sec.  930.162.

[[Page 40251]]

Section 930.162 establishes the terms and conditions of exemption that 
must be satisfied for handlers to receive diversion certificates for 
exempt uses. Section 930.162(b) defines the activities which qualify 
for exemptions including new market development and market expansion. 
New market development and market expansion activities include, but are 
not limited to, sales of cherries into markets that are not yet 
commercially established, product line extensions, or segmentation of 
markets along geographic or other definable characteristics.
    In July 2011, the Board established an ad hoc committee (committee) 
to examine the volume regulation process under the order and recommend 
changes that might benefit the industry. The committee made a series of 
recommendations, mostly administrative in nature, which were discussed 
by the entire Board at its September and November meetings. The 
recommended administrative changes were approved by the Board and the 
changes to the primary reserve and diversion credits for market 
expansion activities, are the subject of this action.
    The order provides for the use of volume regulation to stabilize 
prices and improve grower returns during periods of oversupply. At the 
beginning of each season, the Board examines production and sales data 
to determine whether a volume regulation is necessary and if so, 
announces free and restricted percentages to limit the volume of tart 
cherries on the market. Free percentage cherries can be used to supply 
any available market, including domestic markets for pie filling, water 
packed, and frozen tart cherries. Restricted percentage cherries can be 
placed in reserve, marketed through exempt activities, including market 
expansion, or diverted in orchard or at the processing plant.
    When using reserves to meet their restricted percentage, handlers 
have two inventory reserve pools available, a primary reserve currently 
limited to 50 million pounds and an unlimited secondary reserve. 
Reserves allow the industry to mitigate the impact of oversupply in 
large crop years, while allowing the industry to supply markets in 
years when production falls below demand. Volume in the secondary 
reserve cannot be released unless the primary reserve is empty. Most 
reserve inventory flows in and out of the primary reserve, and it is 
rarely at zero, making it difficult to release volume from the 
secondary reserve.
    Accessing reserves, particularly at the beginning of a crop year 
when the new crop has yet to be harvested, has become more important in 
recent seasons. When the order was promulgated, tart cherries were 
primarily processed as ingredients or into pie filling and a 50 million 
pound primary reserve met the needs of the industry. However, dried 
cherries, juice, and juice concentrate are growing segments of the 
industry, and some handlers are also manufacturing finished products 
for retail. The additional processing steps for these new products, as 
well as the growing variety of retail products have changed reserve 
needs. At any given time, handlers now hold more volume in reserve.
    Additionally, in years when a crop is short or demand exceeds 
expectations, the Board can vote to issue a reserve release. During the 
2010-2011 season, the Board found it necessary to issue two such 
releases. The Board believes increasing the capacity of the primary 
reserve to 100 million pounds will facilitate the release of reserve 
cherries when they are needed. Moving additional reserve volume into 
the primary pool, which is easier to access, allows the industry to be 
more responsive to changes in demand and supply, and allows handlers 
more flexibility in how they utilize the reserve. The intent of this 
action is not to increase the volume of cherries in reserve, but to 
shift a greater volume into the primary reserve where it is more 
accessible to meet handler needs. This change should not impact volume 
restriction calculations.
    Accordingly, at its meeting on September 15, 2011, the Board 
recommended increasing the capacity of the primary inventory reserve 
from 50 million pounds to 100 million pounds. Fifteen Board members 
voted for this change and two abstained.
    In addition to discussing the primary reserve, the Board also 
considered changes to diversion credits. These credits are a handler's 
alternative to placing fruit in reserve in order to comply with their 
restricted percentage under volume restriction. The order provides that 
fruit used for certain exempt purposes, including new market 
development and market expansion, is eligible to receive diversion 
credits. Market expansion is defined as an activity that expands the 
sale of either tart cherries or the products in which tart cherries are 
an ingredient. The Board currently limits the duration of any diversion 
credit for new market development and market expansion to three years.
    The Board believes that new market development and market expansion 
activities have been successful in increasing sales. Some Board members 
expressed that these activities have been very helpful in developing 
the dried cherry and juice segments. Earlier regulations limited the 
volume that could receive diversion credit to 10 million pounds. 
However, the Board believed the limitation could be discouraging 
expansion and in 2006 recommended removing the diversion credit volume 
limitations. Since that time, the use of new market development and 
market expansion activities to meet restricted percentages has grown. 
The current three-year average for diversion credit for market 
expansion activities is approximately 35 million pounds a year.
    In its discussions of this issue, the Board sought to find a 
solution that would continue to encourage new market development and 
market expansion projects, but reduce the impact these credits have on 
volume restriction calculations. While market expansion activities 
designated for diversion credit represent about 15 percent of gross 
sales, these sales are not included in the average sales figure used to 
determine optimum supply for volume regulation. The Board estimates 
that limiting credits to one year will lower the annual average credit 
for market expansion to 16 million pounds, or 19 million pounds below 
the current average.
    With this action, it is anticipated that the difference in volume 
between the three-year credit and one-year credit for market expansion 
will shift to free sales helping to reduce the calculated restricted 
percentage. Using current numbers, assuming that the difference of 19 
million pounds will be counted as free sales, this change will reduce 
the calculated surplus. Reducing the calculated surplus will, in turn, 
help lower restricted percentages. The Board believes this change will 
help make the calculations under volume regulation more reflective of 
industry conditions.
    Accordingly, at its November 2, 2011, meeting, the Board voted 
unanimously to revise exemption provisions applicable to handler 
diversion activities by limiting diversion credits for market expansion 
activities to one year, with the time limit beginning with the date of 
the first shipment. The Board also noted that projects approved prior 
to this action will be allowed to finish their three-year cycle.

Regulatory Flexibility Analysis

    Pursuant to requirements set forth in the Regulatory Flexibility 
Act (RFA) (5 U.S.C. 601-612), the Agricultural Marketing Service (AMS) 
has considered the economic impact of this action on small entities. 
Accordingly,

[[Page 40252]]

AMS has prepared this final regulatory flexibility analysis.
    The purpose of the RFA is to fit regulatory actions to the scale of 
business subject to such actions in order that small businesses will 
not be unduly or disproportionately burdened. Marketing orders issued 
pursuant to the Act, and rules issued thereunder, are unique in that 
they are brought about through group action of essentially small 
entities acting on their own behalf.
    There are approximately 40 handlers of tart cherries who are 
subject to regulation under the marketing order and approximately 600 
producers of tart cherries in the regulated area. Small agricultural 
service firms have been defined by the Small Business Administration 
(SBA) as those having annual receipts of less than $7,000,000, and 
small agricultural producers are defined as those having annual 
receipts of less than $750,000 (13 CFR 121.201).
    According to the National Agricultural Statistics Service, and 
Board data, the average annual grower price for tart cherries during 
the 2010-11 season was $0.221 per pound, and total shipments were 
around 270 million pounds. Therefore, average receipts for tart cherry 
producers were around $99,000, well below the SBA threshold for small 
producers. In 2010, The Food Institute estimated an f.o.b. price of 
$0.84 per pound for frozen tart cherries, which make up the majority of 
processed tart cherries. Using this data, average annual handler 
receipts were about $5.7 million, also below the SBA threshold for 
small agricultural service firms. Assuming a normal distribution, the 
majority of producers and handlers of tart cherries may be classified 
as small entities.
    This rule increases the volume of tart cherries that can be placed 
in the primary inventory reserve from 50 million pounds to 100 million 
pounds and revises the exemption provisions pertaining to handler 
diversion activities by limiting diversion credits for new market 
development and market expansion activities to one year. These changes 
are intended to facilitate sales and lessen the impact of such 
activities on volume restriction calculations. This rule adds Sec.  
930.150 to the rules and regulations to establish the increased limit 
for the primary inventory reserve, and revises Sec.  930.162 of the 
regulations regarding exemptions as they pertain to handler diversion 
activities. The authority for these actions is provided in Sec. Sec.  
930.50 and 930.59 of the order. The Board recommended these actions at 
meetings on September 15, 2011, and November 2, 2011.
    The Board believes these changes better align regulations with 
industry needs and practices, facilitate the release of restricted 
fruit, and help avoid over-restriction. It is not anticipated that this 
action will impose additional costs on handlers or growers, regardless 
of size. Handlers of all sizes could realize a cost savings by not 
having to store product relegated to the secondary reserve, which is 
difficult to access.
    Further, increasing the maximum volume that can be held in the 
primary reserve will allow handlers to be more responsive to industry 
needs by making reserves easier to access in periods of short supply or 
increased demand, which could facilitate sales. Changes in processing 
and cherry products have created a situation in which handlers may have 
more volume on hand at any given time, furthering the need to access 
reserves. Expanding the volume available in the primary reserve will 
assist handlers in managing their stocks and should help maintain a 
steady inventory of finished products to supply retailers and 
consumers.
    Additionally, the Board believes limiting diversion credits for 
market expansion to one year will move more sales into the free sales 
category for purposes of computing volume regulations. This should 
reduce the calculated surplus, and in turn lower restrictions. Lower 
restrictions allow handlers to have a greater portion of their volume 
available for free sales. This could facilitate additional sales which 
could improve returns for growers and handlers.
    This rule is expected to benefit producers, handlers, and 
consumers. The effects of this rule are not expected to be 
disproportionately greater or less for small handlers or producers than 
for larger entities.
    The Committee discussed alternatives to these changes, including 
not increasing the primary reserve capacity, as well as eliminating 
diversion credits for market expansion rather than limiting them to one 
year. Regarding the change to primary reserve capacity, the Board 
agreed that changes in the industry necessitated this change and that 
it was in the industry's best interest to have this change in place by 
the next season. In discussing the change to diversion credits for 
market expansion, the Board considered phasing out diversion credits 
for market expansion altogether. However, some Board members believed 
that offering diversion credit for these activities had been beneficial 
to the industry and thus should not be eliminated entirely. The Board 
believes limiting credits to a maximum of one year would continue to 
encourage handlers to enter new markets, but lessen the impact on 
volume restriction calculations. Therefore, these alternatives were 
rejected.
    In accordance with the Paperwork Reduction Act of 1995, (44 U.S.C. 
chapter 35), the order's information collection requirements have been 
previously approved by the Office of Management and Budget (OMB) and 
assigned OMB No. 0581-0177, (Tart Cherries Grown in the States of 
Michigan, New York, Pennsylvania, Oregon, Utah, Washington, and 
Wisconsin). No changes in those requirements as a result of this action 
are necessary. Should any changes become necessary, they would be 
submitted to OMB for approval.
    Accordingly, this action will not impose any additional reporting 
or recordkeeping requirements on either small or large tart cherry 
handlers. As with all Federal marketing order programs, reports and 
forms are periodically reviewed to reduce information requirements and 
duplication by industry and public sector agencies.
    As noted in the initial regulatory flexibility analysis, USDA has 
not identified any relevant Federal rules that duplicate, overlap or 
conflict with this final rule.
    AMS is committed to complying with the E-Government Act, to promote 
the use of the Internet and other information technologies to provide 
increased opportunities for citizen access to Government information 
and services, and for other purposes.
    In addition, the Board formed a committee to review the order's 
volume regulation procedures and suggest changes to the Board. This 
committee held meetings where these issues were discussed in detail. 
These meetings were public meetings and both large and small entities 
were able to participate and express their views. The Board's meetings 
were widely publicized throughout the tart cherry industry and all 
interested persons were invited to attend and participate in Board 
deliberations on all issues. Like all Board meetings, the September 15, 
2011, and November 2, 2011, meetings were public meetings and all 
entities, both large and small, were able to express views on these 
issues.
    A proposed rule concerning this action was published in the Federal 
Register on April 25, 2012 (77 FR 24640). Copies of the rule were 
emailed to all Board members and tart cherry handlers. Finally, the 
rule was made available through the Internet by USDA and the Office of 
the Federal Register. A

[[Page 40253]]

15-day comment period ending May 10, 2012, was provided to allow 
interested persons to respond to the proposal. No comments were 
received.
    A small business guide on complying with fruit, vegetable, and 
specialty crop marketing agreements and orders may be viewed at: 
www.ams.usda.gov/MarketingOrdersSmallBusinessGuide. Any questions about 
the compliance guide should be sent to Laurel May at the previously 
mentioned address in the FOR FURTHER INFORMATION CONTACT section.
    After consideration of all relevant matter presented, including the 
information and recommendation submitted by the Board and other 
available information, it is hereby found that this rule, as 
hereinafter set forth, will tend to effectuate the declared policy of 
the Act.
    It is further found that good cause exists for not postponing the 
effective date of this rule until 30 days after publication in the 
Federal Register (5 U.S.C. 553) because handlers are already beginning 
to make plans for the upcoming season. Further, handlers are aware of 
these changes, which were recommended at public meetings. Also, a 15-
day comment period was provided for in the proposed rule.

List of Subjects in 7 CFR Part 930

    Marketing agreements, Reporting and recordkeeping requirements, 
Tart cherries.

    For the reasons set forth in the preamble, 7 CFR part 930 is 
amended as follows:

PART 930--TART CHERRIES GROWN IN THE STATES OF MICHIGAN, NEW YORK, 
PENNSYLVANIA, OREGON, UTAH, WASHINGTON, AND WISCONSIN

0
1. The authority citation for 7 CFR part 930 continues to read as 
follows:

    Authority: 7 U.S.C. 601-674.

0
2. A new Sec.  930.150 is added to read as follows:

Sec.  930.150  Primary inventory reserve.

    Beginning July 1, 2012, the primary inventory reserve may not 
exceed 100 million pounds.

0
3. Section 930.162 is amended by adding a sentence at the end of 
section (b)(2) to read as follows:

Sec.  930.162  Exemptions.

* * * * *
    (b) * * *
    (2) * * * In addition, shipments of tart cherries or tart cherry 
products in new market development and market expansion outlets are 
eligible for handler diversion credit for a period of one year from the 
handler's first date of shipment into such outlets.
* * * * *

    Dated: July 3, 2012.
David R. Shipman,
Administrator, Agricultural Marketing Service.
[FR Doc. 2012-16699 Filed 7-6-12; 8:45 am]
BILLING CODE 3410-02-P
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